Amazon vs IBM: Big Blue meets match in battle for the cloud

The tech industry maxim that "no one ever got fired for buying IBM" is a testament to how Big Blue has been the gold standard in computing services for decades.

AWS slashed prices on one of its popular services, EC2, this month and Rackspace shares promptly slid, leaving them down more than 45 per cent so far this year.

AWS generates at least $US2 billion a year in revenue now from a total pie of more than $US60 billion, according to analysts who expect that to quintuple to more than $US10 billion in coming years, partly driven by higher government cloud spending.

The tussle with IBM over the CIA contract has helped burnish Amazon's credentials, increasing Wall Street's confidence in the ability of AWS to compete with the big boys of enterprise IT.

Five companies vied for the contract - AWS, IBM, Microsoft, AT&T and another unidentified firm, according to a report on the bidding by the US Government Accountability Office.

When AWS won, IBM protested, triggering the report by the GAO. The agency recommended in June that the CIA re-do some parts of its contract negotiations, giving IBM another chance.

But the GAO also stated that AWS's offering was superior.

"In every technical criterion Amazon out-scored IBM, one of the most sophisticated and capable IT companies in the world," said Carlos Kirjner, an analyst at Bernstein Research.

The CIA had "grave" concerns, according to the GAO report, about IBM's ability to provide "auto-scaling," a feature that automatically adds or removes computing power in response to applications use.

"Auto-scaling is very complex and there are not many cloud providers that can do it well, but Amazon is great at it," said Kyle Hilgendorf, a cloud computing analyst at Gartner. "I don't think anyone thinks IBM has a better cloud service."

IBM spokesman Clint Roswell said there were "inaccuracies" in the government's assessment of its CIA proposal.

"IBM remains committed to providing enterprise-level secure and robust cloud solutions and looks forward to a renewed opportunity to show our capabilities to fulfill the requirements of this important agency," he added.

An Amazon spokeswoman declined to comment on the CIA contract. A CIA spokesman also declined to comment.

IBM bought SoftLayer Technologies, a rival to AWS, for $US2 billion in June. That could help it when the CIA comes calling again, said Bill Moran at Ptak Associates.

"They do not need any other issue like 'auto-scaling' to bedevil them the next time around," he added